The author is an analyst for NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
YG Ent posted consensus-meeting 3Q23 results. Viewing the firm’s current share price as already fully reflecting concerns toward an entertainment firm, we advise investors to focus on outweighing upside share price factors, especially likely contract renewal for Blackpink and the upcoming debut of BabyMonster. We adhere to a Buy rating.
Blackpink’s contract renewal confirmation + BabyMonster’s debut + Treasure’s Japan market growth
We maintain a TP of W87,000 and a Buy rating on YG Entertainment (YG Ent), viewing the firm’s current share price as already having baked in all major risk factors, namely artist departure (earnings uncertainty), human risk (deteriorating investment sentiment), and a slowing in Chinese fan club bulk purchases (stagnant growth). With concerns toward its entertainment domain digested, we see only upside for YG Ent’s share price. It is worth paying attention to the resolution of uncertainties brought about by the announcement of Blackpink's contract renewal, the debut of rookie BabyMonster, and the growth of Treasure’s earnings contributions (led by Japanese market sales).
Blackpink: Looking at contract renewal anticipation, hints can be found in the major contracts in the firm’s quarterly report. There is no need to worry about Chinese fan club bulk purchases. As confirmed by the 1H23 release of Jisoo’s solo album (first week sales of 1.17mn copies), demand for Blackpink albums in China is centered upon individual purchase activity rather than fan club group purchases.
BabyMonster: A Nov 27 debut has been confirmed. After releasing multiple digital singles, a regular album will likely be released in the form of a physical album as part of a strategy for securing a stable fandom.
Treasure: Even only considering the growth of the Japanese fandom, we still see ample room for further album sales expansion. We point out that the recent portion of Chinese fan club group purchases has been close to zero.
3Q23 review: Earnings arrive in line with consensus
YG Ent posted 3Q23 consolidated sales of W144bn (+26% y-y) and OP of W21.2bn (+37% y-y), satisfying consensus on both eight Blackpink world tour shows and brisk sales of Treasure’s new album. However, as the remaining costs related to the Blackpink’s world tour were reflected all at once, there has been a temporary decrease in margins, as expected. In 4Q23, sales related to Jennie and BabyMonster's digital single and Treasure's Japanese fan meetings tour are to be reflected.